Block Energy P. Regulatory News (BLOE)

Block Energy Plc / Index: AIM / Epic: BLOE.L / Sector: Oil and Gas

11 December 2018

Block Energy Plc ("the Company", "Block" or "the Group")

Advanced Completion/Work-Over Technology Secured for Multi-Well Programme in Georgia

Block Energy Plc, the exploration and production company focused on the Republic of Georgia, is pleased to announce it has signed a service agreement for the provision of an advanced downhole perforation technology with a proven record of significantly enhancing recovery rates. The agreement gives Block exclusive access to the specialist drilling tool throughout eastern Europe, the Caucasus and central Asia. The Company will use the technology, which arrived onsite at Block's operations in Georgia on Thursday (7 December 2018), to re-complete up to eight wells at its 100% owned Norio licence, part of an initial work programme targeting an increase in production at the field to 250 bopd by H1 2019.

Block has selected the tool, which is new to Georgia, over conventional perforation technologies that have had mixed success in the country. It promises to significantly enhance recovery rates by facilitating wellbore communication with reservoirs, creating a relatively small horizontal borehole (about one inch in diameter) milled through the casing wall then drilled several feet into the formation. The tool, which has been used by many operators since it was introduced in the 1990s, can drill at multiple levels and orientations in the course of a single run into the hole and can achieve up to eight or more penetrations.

The Company has signed Heads of Terms ('the Terms') for an agreement pursuant to which Block will help promote the technology to other exploration and production companies operating within the region, and so earn a net royalty of 10% from revenue the tool's suppliers earn through Block's marketing activities. The Terms also include the option of a Joint Venture Agreement pursuant to which Block would become the exclusive provider of the technology within the region.

Paul Haywood, Director of Block Energy, said: "This specialist tool is potentially game-changing for Block, offering a reliable and cost-effective alternative to conventional perforating technology, which to date has produced mixed results in Georgia. We look forward to deploying this highly robust and deployable technology with a proven record of generating significant production increases wherever it has been used and are confident it will help us achieve our initial objective of significantly scaling up Norio production to 250 bopd.

"The agreement supplements our production programme by opening a significant new source of revenue for the Company. Block will take the lead in demonstrating the technology's effectiveness and reliability in the field, and so qualify for a 10% net royalty stream flowing from use of the tool within the region by other operators. The proposed Joint Venture Agreement, making us exclusive provider of the technology throughout the region, will put us in a stronger negotiating position when farming in to new opportunities. As reported in our recent operations update (5 December 2018), we have successfully re-entered three wells at Norio and are rigging up a fourth in preparation for the tool to be deployed to the field. I look forward to updating the market as our work programme progresses."

**ENDS**

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Notes:

Block Energy (BLOE.L) is an AIM quoted oil and gas company with a growing portfolio of production, development and exploration assets in the Republic of Georgia. Block holds a 100% Working Interest ('WI') in the producing Norio licence, a 90% WI in the producing Satskhenisi licence and a 25% WI in the West Rustavi licence with the right to farm-in to up to a 75% WI. Block's three licences lie in the heart of the Schlumberger's 100% held position in the Kura basin, which at its peak produced ~70,000 barrels of oil per day ('bopd') in Georgia. 

The licences currently hold estimated net proven oil reserves (2P) of 1.5 million barrels plus 61 million barrels unrisked contingent oil resources ('2C'). Furthermore, the West Rustavi permit has estimated gross unrisked contingent gas resources (2C) of 608 BCF. Multiple gas discoveries have already been made in the Lower Eocence and Upper Cretaceous within the Licence and lie on trend with the same play currently being targeted by Schlumberger on neighbouring licence, Block XIb. The estimated cost of gas development and production at West Rustavi is c.US$2.00/Mcf which equates to operating netbacks of c.US$2.6/Mcf (assuming a 75% working interest) - Georgia currently purchases its gas for c.US$5.5 /Mcf (c.US$600m project value to the Company). Appraisal of the West Rustavi gas discovery is due to take place in H1 2019.

Appraisal of the West Rustavi gas discovery is expected to be conducted contemporaneously with the rehabilitation of the producing Norio (100% WI) and Satskhenisi fields (90% WI) which provide immediate production uplift on commencement of field operations in Q1 2019. The near-term target is to raise production to 900 bopd from 15 bopd within 18 months via a low cost, low risk workover and sidetrack programme, and then to utilise cash flow from production to drill new horizontal wells and sidetracks to raise production to c.2,000 bopd over the medium term. Oil production across the fields offer excellent netbacks, with the current cost of production of c.US$25 per barrel providing netbacks of c. US$30-35 per barrel.